Elasticity of Factor Substitution and Capital Formation in a Two-Sector Economy

Mino, Kazuo (2011): Elasticity of Factor Substitution and Capital Formation in a Two-Sector Economy.

Abstract

This paper explores the relationship between factor substitution in production and the steady-sate level of capital stock in a growing economy. Unlike the foregoing studies on this topic that have exclusively utilized one-sector growth models, we consider a two-sector economy where investment and consumption goods are produced by different technologies. We show that the relation between the elasticity of substation and the long-run capital formation critically depends on the factor-intensity ranking between the two sectors. Keywords: CES production function, two-sector model, capital accumulation, factorintensity ranking

• Item Type: MPRA Paper
• Language: English
• Keywords: elasticity of factor substitution, two sector model, factor intensity ranking, capital formation
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

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